Refer to the information in Exercise. In Exercise HUDSON CO. Contribution Margin Income Statement For Year Ended

Question:

Refer to the information in Exercise.

In Exercise

HUDSON CO.

Contribution Margin Income Statement

For Year Ended December 31, 2015

Sales (9,600 units at $225 each) . . . . . . . . . . . . . . . . $2,160,000

Variable costs (9,600 units at $180 each) . . . . . . . . . 1,728,000

Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . $ 432,000

Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,000

Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,000

1. Compute the company’s degree of operating leverage for 2015.

2. If sales decrease by 5% in 2016, what will be the company’s pretax income?

3. Assume sales for 2016 decrease by 5%. Prepare a contribution margin income statement for 2016.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...